NATIONAL MINIMUM WAGE
Regulations implementing the
National Minimum Wage – a
report on the Apprentice Rate
JUNE 2015
Re
egullatio
ons imp
plem
mentting
g
the
e Na
ational Min
nimu
um
Wa
age
e – a reportt on
n the
e
Ap
ppre
entic
ce Rate
e
Prese
ented to Parliamen
nt by the S ecretary
y of State
e for Busiiness,
Innova
ation and
d Skills by
y Comma
and of He
er Majesty
y
June 2015
Cm 9061
© Crow
wn copyright 2015
This pu
ublication is licensed under the terms of the Open Governmennt Licence v3.0
except where oth
herwise sta
ated. To vie
ew this lice
ence,
visit na
ationalarchives.gov.uk/doc/open
n-governm
ment-licence/version/33 or write to the
Informa
ation Policy Team, The Nationa
al Archives
s, Kew, London TW99 4DU, or
email: psi@nationalarchives.gsi.gov.u
uk.
arty copyrig
ght informa
ation you w ill need to
o obtain
Where we have identified any third pa
permisssion from the copyrig
ght holderss concerne
ed.
This pu
ublication is available
e at www.g
gov.uk/government/publicationss
Any en
nquiries reg
garding this publicatio
on should be sent to us at National Minim
mum
rd
Wage Team, Abb
bey 1, 3 Floor, 1 Vicctoria Stree
et, London
n, SW1H 0E
ET.
Print IS
SBN 97814
474120098
8
Web IS
SBN 97814
474120104
4
ID 26051501
06/15
Printed
d on paper containing
g 75% recyycled fibre content minimum
Printed
d in the UK
K by the Wiilliams Lea
a Group on
n behalf of the Controoller of Herr
Majesty’s Station
nery Office
Government report on Apprentice Rate for October 2015
Contents
National Minimum Wage and the Low Pay Commission .................................................... 5
The Government’s response to the Low Pay Commission’s 2015 recommendations ........ 6
Government rational for the Apprentice rate ....................................................................... 8
3
4
Government report on Apprentice Rate for October 2015
Regulations implementing the
National Minimum Wage – a
report on the Apprentice Rate
National Minimum Wage and the Low Pay Commission
1. The objective of the National Minimum Wage (NMW) is to provide as much support
as possible to the wages of the low paid without damaging their employment
prospects by setting it too high. The NMW sets a wage floor below which pay cannot
fall ensuring protection for low-paid workers, while also providing incentives to work.
2. The Low Pay Commission (LPC) is an independent body that advises the
Government about the NMW. It is made up of 9 commissioners and a chair, drawn
from a range of employee, employer and academic backgrounds. The Government
specifically asks the LPC to make recommendations based on maximising the
wages of the low paid without damaging employment opportunities. The remit for the
LPC’s 2015 report1 was published on 18 June 2014.
1
https://www.gov.uk/government/publications/national-minimum-wage-low-pay-commission-report2015
5
Government report on Apprentice Rate for October 2015
The Government’s response to the Low Pay Commission’s
2015 recommendations
3. This report is laid before Parliament in accordance with sections 5 and 6 of the
National Minimum Wage Act 1998, reproduced in Annex A. Where matters are
referred to the LPC and the regulations depart from any of its rate
recommendations, sections 5(4) and 6(3) require the Secretary of State to lay a
report before each House of Parliament containing a statement of the reasons for
the decision.
4. The report of the LPC recommending NMW rates from October 2015 was
submitted to Government in February 2015. This report confirms the
Government’s response to the NMW rate recommendations. Copies of the LPC’s
report have been laid in the libraries of each House.
5. The LPC’s recommendations follow consultation with businesses and workers
and their representatives, together with extensive research and analysis. The
recommendations reflect unanimous views of all the Commissioners. In reaching
unanimity on their recommendations, the LPC has balanced the need to protect
the earnings and jobs of low-paid workers against the difficulties faced by
employers and businesses, paying particular attention to the employment
prospects of young people.
6. The Government proposes to accept the LPC recommendations for the following
rates:
•
•
•
•
a 20p (3.1%) increase in the adult rate (from £6.50 to £6.70);
a 17p (3.3%) increase in the rate for 18-20 year olds (from £5.13 to £5.30)
an 8p (2.2%) increase in the rate for 16-17 year olds (from £3.79 to £3.87)
a 27p (5.3%) increase in the NMW Accommodation Offset rate (from £5.08 to
£5.35)
7. However the Government proposes to depart from the LPC’s recommendation to
increase the Apprentice rate by 7p (2.6 %) from £2.73 to £2.80, in favour of
increasing the rate by 57 pence to £3.30. This is the largest ever increase (21%)
in the NMW for apprentices and will halve the gap with the age rate for 16-17
year olds, currently £3.79 an hour.
8. The draft National Minimum Wage (Amendment) Regulations 2015 will therefore
follow the recommendations of the LPC on the NMW rates with the exception of
the Apprentice rate.
6
Government report on Apprentice Rate for October 2015
9. The Government will publish a full Impact Assessment which outlines the detailed
cost and benefits for the changes to all of the NMW rates. This includes the
impact of the proposed increase to the Apprentice rate as discussed in this
report.
7
Government report on Apprentice Rate for October 2015
Government rational for the Apprentice rate
10. The Government proposes to depart from the LPC’s recommendation for a 7p
increase to £2.80 an hour for the Apprentice rate, in favour of a higher increase of
57p, taking the rate from £2.73 an hour to £3.30. This report considers the
reasons for the Government’s decision to depart from this recommendation and
summarises the evidence for the Government’s proposal for a larger increase in
the Apprentice minimum wage.
11. The Apprentice rate applies to apprentices who are under the age of 19 or in the
first year of their apprenticeship. Approximately 75,000 apprentices will be
affected by the increase, and this will cost employers an estimated £75.6 million
(a direct impact on private sector employers2 of £38.8 million) in increased wage
bills.
12. The principle reason for the LPC’s recommendation was a high level of noncompliance for apprentices, although it is at a lower level than in previous years.
The LPC judged that large increases in the level of the Apprentice rate could
pose risks to provision of available apprenticeship opportunities. The Government
see this as cautious approach particularly considering the wider apprenticeship
reforms aimed at improving the quality and value of apprenticeships which are
considered further below. The Government shares the LPC’s concern about
relatively high non-compliance with the Apprentice rate. The Government will
continue to raise awareness with employers on their NMW obligations as well as
investing in NMW enforcement.
13. We have noted the LPC’s recommendation that the Government should increase
its communication of the apprentice rate. We are exploring options for raising
awareness of the Apprentice rate.
14. The Government carefully considered the evidence and the LPC’s
recommendations in its 2015 report. We recognise the challenges that the LPC
has faced, especially during such uncertain economic environment and without
an apprentice pay survey in 2013. The LPC has produced a detailed report and
2
To calculate the Business Net Present Value we need to calculate the percentage impact on
business for each rate. For the age related rates, we do this by calculating what percentage of
affected workers for each rate are private sector employees. For the Apprentice rate calculations,
although costings are made using the Apprentice Pay Survey, the survey did not ask if Apprentices
were working for a Public or Private sector employer. We therefore used ASHE data to calculate the
proportion of affected Apprentices that work for private sector employers. The result was 57%.
8
Government report on Apprentice Rate for October 2015
the Government appreciates the hard work that the Commissioners have put into
developing their recommendations.
15. However, after careful consideration, the Government has concluded that there
are important reasons that mean we should make a bigger increase to the
Apprentice rate.
16. Apprenticeship policy has a growing focus on quality, with Ministers, including the
Prime Minister, promoting apprenticeships as a credible alternative to university
for gifted young people. Employment remains an essential part of an
apprenticeship and we believe that a larger increase in the Apprentice rate of
NMW than that recommended by the LPC better reflects the role of apprentices
as productive members of an organisation’s current workforce and as an
investment in its future.
17. The Government wishes to maintain the attractiveness of Apprenticeships
relative to other jobs without training by closing the gap between the Apprentice
rate and the age related rates. This, alongside wider reforms, will encourage
more young people to consider apprenticeships as a credible alternative to both
higher education and jobs without training.
18. The Future of Apprenticeships in England: Implementation Plan in 2013 set out
ambitious plans to improve the quality of apprenticeships to make them attractive
for young people and more relevant to businesses. Apprenticeships already
represent a positive return on investment; the National Audit Office Report3,
published in February 2012, found that adult apprenticeships deliver £18 of
economic benefits for each pound of Government investment. The report states
that there are substantial productivity benefits to employers, amounting to spill
over effects of 25% of the wage premium.
19. Furthermore, through the reforms, employers now have a greater role in
designing apprenticeships; deciding what apprentices need to learn and how they
will be assessed. In terms of quality and attractiveness, standards are designed
by employers and include a synoptic assessment that will guarantee that the
apprentice is fully competent. There is greater flexibility in assessment so
standards developers can choose the most appropriate way to assess
Apprentices, for example through practical tasks, a viva or written exam.
20. The reforms also focus on increasing the rigour of apprenticeships with all
apprentices having to prove their competence by passing a tough and
independently assessed end-point assessment. In addition, the employer will be
3
http://www.nao.org.uk/publications/1012/adult_apprenticeships.aspx
9
Government report on Apprentice Rate for October 2015
involved in deciding when an apprentice is ready to be assessed and apprentices
will be graded according to their performance.
21. Some employers have expressed concern about the quality of applicants for
apprenticeship positions. A significant increase in the apprentice rate of NMW is
an important factor in helping to raise the profile of the programme and attracting
greater numbers and a wider range of applicants.
22. We have considered that raising the Apprentice rate could reduce employer
demand for apprentices. As well as raising direct employer costs, employers
must allow apprentices time off from their work to train. However, the Apprentice
rate of £3.30 is still less than the NMW of a non-Apprentice 16 year old. In
addition Apprenticeships provide substantial productivity benefits to employers
and the Government’s reforms should support a further rise in their productivity.
23. The Government do not take decisions to reject the LPC’s recommendations
lightly. The LPC’s independent conclusions have been based on extensive
examination of labour market evidence and we do not question the detailed and
careful analysis undertaken. However, the Government feels there are important
reasons for a larger increase to the Apprentice NMW rate. In reflecting the
objectives of both employers and of unions, the LPC plays a crucial role in
advising the Government about the NMW. We look forward to working with the
LPC to ensure future NMW rates which are affordable for business but also
enable workers to benefit from as generous a NMW as possible.
10
Government report on Apprentice Rate for October 2015
ANNEX A
Section 5 of the National Minimum Wage Act 1998
The first regulations: referral to the Low Pay Commission.
(1)Before making the first regulations under section 1(3) or (4) or 2 above, the
Secretary of State shall refer the matters specified in subsection (2) below to the Low
Pay Commission for their consideration.
(2)Those matters are:
(a) what single hourly rate should be prescribed under section 1(3) above as
the national minimum wage;
(b) what period or periods should be prescribed under section 1(4) above;
(c) what method or methods should be used for determining under section 2
above the hourly rate at which a person is to be regarded as remunerated for
the purposes of this Act;
(d) whether any, and if so what, provision should be made under section 3
above; and
(e) whether any, and if so what, descriptions of person should be added to the
descriptions of person to whom section 3 above applies and what provision
should be made under that section in relation to persons of those
descriptions. .
(3)Where matters are referred to the Low Pay Commission under subsection (1)
above, the Commission shall, after considering those matters, make a report to the
Prime Minister and the Secretary of State which shall contain the Commission’s
recommendations about each of those matters.
(4)If, following the report of the Low Pay Commission under subsection (3) above,
the Secretary of State decides:
(a) not to make any regulations implementing the Commission’s
recommendations, or (b) to make regulations implementing only some of the Commission’s
recommendations, or
(c) to prescribe under section 1(3) above a single hourly rate which is different
from the rate recommended by the Commission, or
(d) to make regulations which in some other respect differ from the
recommendations of the Commission, or
11
Government report on Apprentice Rate for October 2015
(e) to make regulations which do not relate to a recommendation of the
Commission,
the Secretary of State shall lay a report before each House of Parliament containing
a statement of the reasons for the decision.
(5) If the Low Pay Commission fail to make their report under subsection (3) above
within the time allowed for doing so under section 7 below, any power of the
Secretary of State to make regulations under this Act shall be exercisable as if
subsection (1) above had not been enacted.
Section 6 of the National Minimum Wage Act 1998
Referral of matters to the Low Pay Commission at any time.
(1) The Secretary of State may at any time refer to the Low Pay Commission such
matters relating to this Act as the Secretary of State thinks fit. .
(2) Where matters are referred to the Low Pay Commission under subsection (1)
above, the Commission shall, after considering those matters, make a report to the
Prime Minister and the Secretary of State which shall contain the Commission’s
recommendations about each of those matters. .
(3) If on a referral under this section:
(a) the Secretary of State seeks the opinion of the Low Pay Commission on a
matter falling within section 5(2) above, .
(b) the Commission’s report under subsection (2) above contains
recommendations in relation to that matter, and .
(c) implementation of any of those recommendations involves the exercise of
any power to make regulations under sections 1 to 4 above, .
subsection (4) of section 5 above shall apply in relation to the report, so far as
relating to the recommendations falling within paragraph (c) above, as it applies in
relation to a report under subsection (3) of that section.
(4)If on a referral under this section:
(a) the Secretary of State seeks the opinion of the Low Pay Commission on
any matter falling within section 5(2) above, but .
(b) the Commission fail to make their report under subsection (2) above within
the time allowed under section 7 below, .
the Secretary of State may make regulations under sections 1 to 4 above as if the
opinion of the Commission had not been sought in relation to that matter.
12